Old Name, New Growth

First, it was a collapsed stock price two years ago. Then, a testy activist investor who thought the company was a basket case. Now, it's a bored set of investors who continue to let the stock trade at a major discount relative to peers.

This morning, AOL (AOL) CEO Tim Armstrong delivered the latest set of results for the former Internet giant and they continue to look good. The stock is up in response, more than 8% today and more than 23% in the last month.

A detailed review of the AOL results suggests why investors liked what they heard.

While competitors like Yahoo! (YHOO) have been unable to show revenue growth, AOL grew again for the third consecutive quarter.

Ad revenue was up 14% year over year.

AOL uniques grew for the fifth consecutive quarter.

AOL Membership (dial-up subscribers) continued to reduce its churn rate in the quarter.

The company's adjusted OIBIDA (operating income before interest, depreciation and amortization adjusted for Patch restructuring charges) continued to increase.

AOL reduced its share count by 2.5 million in the quarter and it's down 26% since December 2009.

The most impressive stat I saw was the across-the-board growth in AOL's different ad units. This has been steady over the last year. The biggest segment winner in ads was from AOL's Third Party Network. This includes its recent Adap.tv acquisition.

Adap.tv grew its revenues 17% year over year in the quarter, which was up from 9% year-over-year growth in Q2. The fourth quarter should be even stronger for Adap.

AOL was also eager to talk up its expense reduction in the quarter, which helped it continue to track downwards.

Where do we go from here? AOL will likely get several upgrades in the next day or so. It is heading into its strongest holiday ad quarter and the stock is now up to its 2013 highs.

My best guess is that AOL's stock is about to break decisively above its $42 levels with a decent shot at $50 for the end of the year.

But more intriguing is the possibility that AOL will begin to become a target for Yahoo! As I said last week in TheStreet, I think there's a good chance of that happening as Marissa Mayer wants to enjoy some of that ad growth, especially in the video space.

In that kind of a buyout scenario, AOL's stock would likely have to see $60 for its board to approve such a deal.